New York fines Zenefits $1.2 million for unlicensed insurance sales

Zenefits has reached a settlement with another state, and it’s a pricey one.

New York Financial Services Superintendent Maria T. Vullo announced on April 11 that YourPeople Inc., doing business as Zenefits FTW Insurance Services, will pay a $1.2 million fine following an investigation by the Department of Financial Services (DFS) for repeated violations of Insurance Law, including allowing unlicensed employees to solicit, negotiate and sell insurance policies.

Zenefits spokesperson Jessica Hoffman said in a statement to Reuters that the “tough but fair settlement shows new leadership’s continued dedication to building solid relationships with regulators as we put the past behind us.”

As part of a consent orderentered into with DFS, Zenefits will take all necessary actions to ensure that all of its employees and contractors acting as insurance producers in New York are properly licensed and have completed all required training and education.

“DFS takes very seriously any unlicensed activity in the New York insurance market, and will enforce New York State’s licensing laws to their fullest extent,” Vullo said. “We believe that the penalty and remedies we have imposed, including retraining employees, will ensure the protection of New York consumers as Zenefits conducts its business. We encourage regulated entities to voluntarily disclose issues they discover on their own, and commend Zenefits for self-reporting these violations.”

The DFS investigation found that in 2014 and 2015, Zenefits permitted employees to solicit, negotiate or sell insurance policies without required licenses, did not maintain records necessary to verify compliance with New York Insurance Law, and failed to implement adequate compliance controls and employee training programs. In addition, the company’s former CEO, Parker Conrad, wrote a software macro in 2013 that allowed employees to evade broker licensing education requirements.

As part of its agreement with DFS, Zenefits will train all current and future employee brokers with a minimum of 52 hours of insurance broker education, and document the retraining to DFS.

Zenefits, an online human resources tool that offers insurance brokerage services for the purchase of group property, casualty, health and life insurance policies for employees, self-reported the violations. After conducting an internal investigation, Zenefits reported to DFS in November 2015 that it learned that its employees had engaged in insurance business in New York without licenses. Some employees were licensed to sell insurance in other states; others were not licensed at all, and some Zenefits supervisors were aware of the compliance failure. In addition, Zenefits also failed in some cases to maintain complete records identifying which employee sold, negotiated or solicited a particular insurance policy.

In November 2016, Zenefits reported to DFS that as of that time, all employees soliciting, negotiating or selling insurance in New York had valid insurance broker licenses and that the company had instituted controls that would prevent employees from selling insurance without a license in the future.

The remedies outlined in the consent order ensure the company’s compliance with New York Insurance Law. Zenefits has represented to DFS that it has taken several actions to remedy the violations, including replacing the company’s CEO and several other executives. In addition, Zenefits has reported to DFS that it has appointed a chief compliance officer and built a compliance program and team; restructured its board from one controlled by its former CEO so that two-thirds of the seats are not held or controlled by management; developed licensing controls that have been provided industry-wide via a free open-source app; and used a national accounting firm to produce reports on past licensing compliance history and to evaluate the design and functioning of the company’s new licensing controls.

The New York settlement is the latest among several that the company has agreed to regarding licensing violations in various states. The largest was a $7 million settlement announced late last year in Zenefits’ home state of California, which included a $3 million penalty for licensing violations, a $4 million penalty for subverting the pre-licensing education and study-hour requirements for agent and broker licensing, and a $160,000 payment to reimburse the California insurance department for investigation and examination expenses.

Zenefits announced in February that it would lay off 430 employees, equating to 45% of its staff and leaving it with about 500 employees.